On 30 September 2020 the government published its consultation on amending the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the “Regulations”), raising minimum energy efficiency standards for the domestic private rented sector in England and Wales.
What is behind this consultation? The government’s aim is to have as many private rented sector homes as possible achieve an EPC band C by 2030. As a reminder, since 1 April 2020 there is a minimum EPC band of E for domestic private rented property (subject to a limited number of exemptions).
The consultation outlines four key proposals to achieve this goal:
- Raising the minimum energy performance standard…
The government’s preferred policy is for all domestic private rented property to meet the single target of an EPC band C. To be clear, this is the “energy efficiency rating” (“EER“) rather than the “environmental impact rating” (“EIR“). The EER measures a building’s performance based on the total energy costs to heat and light the building, whilst the EIR measures carbon emissions from a building.
- …via a phased introduction
The requirement to meet the minimum EPC band C would be introduced in phases. Under the proposals, the new minimum standard would apply from:
- 1 April 2025 for new tenancies of domestic private rented property (including renewals); and
- 1 April 2028 for all domestic private rented property tenancies.
Alternative approaches include: a single compliance date (i.e. all properties must achieve the EPC band C rating by 1 April 2028); earlier compliance dates in a phased approach; or more interim targets in a phased approach.
- Changes to the costs cap
At present, where a landlord has substandard domestic private rented property its spending requirements in improving energy performance are capped at £3,500 (VAT inclusive).
Achieving a higher minimum EPC band will require more investment, and the government wants to increase the cap to £10,000 (VAT inclusive).
The government sees the increased cap as the best way to ensure the majority of properties are improved whilst limiting landlords’ costs. Its modelling indicates that landlords would spend £4,700 per property to reach EPC band C if the £10,000 cap was set.
- A “fabric first” approach
This broadly means improving the energy efficiency of the fabric of a building as a priority, ahead of other improvements. EPC recommendation reports currently adopt the fabric first approach, but landlords are free to implement recommendations in any order they wish.
The government is open to views on how to incentivise fabric first measures – making it mandatory via legislation is up for consideration.
Whilst the above is the government’s preferred policy, it is not the only option on the table. The grading of substandard EPCs is currently done on the EER rather than the EIR. Confusingly, the EIR is also on an A to G scale but is included in EPCs for information purposes only. The government is considering an alternative “dual metric” approach whereby landlords would need to ensure their properties achieved an EER band C and an EIR band C. The cost cap would also be increased to £15,000, rather than £10,000. Whilst this is more ambitious and would lead to more significant emissions savings, the cost to landlords is potentially higher. The government has welcomed views on this alternative.
Finally, the government wants responses on how to encourage compliance. This could include the creation of a new property compliance and exemptions database, operated by a third party provider with a registration fee of £30 per property. The government accepts that there may need to be a maximum registration fee for landlords with significant domestic private rented property portfolios.
The government is also considering changes to enforcement powers, mainly for local authorities. Local authorities have some powers to enter domestic private rented property under the Housing Act 2004 (for health and safety purposes), but the government’s view is that using these powers for enforcing the Regulations is disproportionate to their intended purpose. Instead, local authorities may be given alternative powers to serve notices on landlords and any tenants to carry out inspections at agreed times. In the future, the Housing Health and Safety Rating System that local authorities use may be amended to align with the Regulations. Fines for breaching the Regulations could also be increased to £30,000 per property and per breach to act as a greater deterrent.
You can find a copy of the consultation here. Responses must be submitted by 30 December 2020, and we strongly encourage all interested parties to respond.